Who's to blame?

Since my last post, a friend has pointed out to me that just because the plan makes some logical sense, doesn't mean one should put their trust (i.e. $700 billion) in the hands of unproven, politically entangled leaders. Point taken.

After several one-on-one conversations, and reading articles and email discussions on the topic, there is at least one common thing that most all of us "little people" agree on, no matter what our political leanings: 'make the corporate CEOs pay! Do not give any more of our money to these greedy, manipulative pumpkin-heads!' (Sorry, my roommate and I were just talking about the pumpkin bread she made this week.)

I must say I agree. It's a bit of scapegoating, but by all accounts, decades overdue.

But I also do so with trepidation. I mean, who of us doesn't have more than we need? Am I giving all of my disposable income to the poor? Even us little people operate day-to-day with a socially-acceptable level of greediness, I think. Came across this convicting excerpt in The Week magazine (Oct. 3, 2008 issue):

Perhaps we should all look in the mirror, said Dean Calbreadth in The San Diego Union-Tribune. The real culprit in this American nightmare is not the convervative belief in free markets, or the liberal fondness for regulation. It's our national addiction to spending money we don't have. From Wall Street to Main Street and across the political spectrum, Americans long ago stopped believing in the importance of "living within their means." We've grown used to having whatever we want--cars, flat-panel TVs, flashy furniture, pricey clothing, and yes, houses--and figuring out ever-more creative ways to postpone the day that the bill comes due. That ugly day has now arrived.

Your thoughts?

Not actually a 'bailout'

I have felt confused and dismayed by all the financial talk this week. Found these off-the-cuff remarks by Federal Reserve Chairman Ben Bernanke that I found helpful. He apparently tried to explain his plan, which is actually rooted in economic science. Not being an expert, I'm not completely sure where the flaws are, but at least it's explained without political rhetoric. Thought I'd share:

"Let me come to the critical point: I believe that under the Treasury program, auctions and other mechanisms could be devised that will give the market good information on what the hold-to-maturity price is for a large class of mortgage-related assets. If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.

"First, banks will have a basis for valuing those assets and will not have to use fire sale prices. Their capital will not be unreasonably marked down. Second, liquidity should begin to come back to these markets. Third, removal of these assets from balance sheets and better information on value should reduce uncertainty and allow the banks to attract new private capital. Fourth, credit markets should start to unfreeze. New credit will become available to support our economy. And fifth, taxpayers should own assets at prices close to the hold-to-maturity values, which minimizes their risk.

"Now how to make this work. To make this work, we do need flexibility in design of mechanisms for buying assets and from whom to buy. We do not know exactly what the best design is. That will require consultation with experts and experience with alternative approaches.

"Second, understanding the concerns and the worries of the committee, we cannot impose punitive measures on the institutions that chose to sell assets. That would eliminate or strongly reduce the participation and cause the program to fail.

"Remember the beneficiaries of this program are not just those who sell the assets, but all market participants in the economy as a whole.

"But finally and very importantly, this is not to say the financial institution should not be reformed. It should be, it's critical. I agree with the Treasury secretary, the Federal Reserve will give full support to fundamental reform of the financial industry.

"But whatever reforms the Congress makes should apply to the whole industry, whether they participate in this program or not. So in summary, I believe that under the Treasury authority being requested, a program can be undertaken that will help establish reasonable hold-to-maturity prices for these assets.

"Doing that will restore confidence and liquidity to financial markets and help the economy recover without an unreasonable fiscal burden on taxpayers. So I urge you to act as soon as possible. Thank you."